Owner’s Partial Use of the Property Does not Preclude Loss of use Damages in Construction Defects Cases
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Under Florida law, a property owner may be entitled to “loss of use” damages if construction delay or defects deprive the owner of use of the property. Loss of use damages are measured by the reasonable rental value of the property. These rules raise some questions. For instance, can an owner claim “loss of use” for the period that owner refuses to inhabit the property while construction defects are being repaired? What if owner partially uses the property during such time? These questions were addressed in a recent Florida Third District Court of Appeals case: Gonzalez v. Barrenechea, 2015 Fla. App. LEXIS 647 (Fla. 3d DCA Jan. 21, 2015). This blog examines the Gonzalez case and the answers provided therein.
To sum up Gonzalez, a homeowner was entitled to loss of use damages during the period in which the improperly-designed air conditioning system of his newly constructed home was replaced because the repair process made the home unsuitable for living. Despite the unsuitable living conditions, the homeowner made limited use of his home (e.g. storage) but was still entitled to loss of use damages. The homeowner’s property appraisal expert established a prima facie case for damages by using the reasonable rental value of the home during the repair period. Plaintiff’s expert, on cross-exam, admitted that the limited use may reduce the rental value. However, the defendant did not present any evidence of the value for the limited uses the homeowner made of the property during the repair period. In other words, defendant failed to meet its burden to prove offsets to the rental value.
Gonzalez hired an architect to design a new home. After the home was completed, Gonzalez discovered that the air conditioning system did not adequately cool the home. The architect was advised of the problems with the air conditioning system, but did not take actions to remedy them. Gonzalez hired a new design firm to address the problems. The air conditioning system was subsequently repaired, requiring a twenty-month process that Gonzalez claimed to be destructive, messy, and intrusive. During this period, Gonzalez asserted, the home was unsuitable for living and refused to move in. Id. at *1-2.
Nevertheless, Gonzalez made limited use of the home during the repair period. Gonzalez’s son slept in the home intermittently, serving as a de-facto security guard and allowing the construction crews access to the home when necessary. Gonzalez also docked his boat behind the home, parked his cars in the garage, and stored $500,000 worth of furniture that had been purchased for the home inside the home. Id. at *2.
At trial, in addition to direct damages for the cost of redesign and repair, Gonzalez sought loss of use damages stemming from his inability to move into the home during the repair period. To establish the damages value for loss of use, Gonzalez presented the testimony of a real estate appraiser. The appraiser testified that the rental value of the home during the repair period, based on comparable rentals in the area, was $15,500 per month. On cross-examination, the appraiser admitted that he was unaware of the limited uses that Gonzalez was making of the home during the repair period. When asked if there would be a rental value for a home with those uses being made, he testified that “there would be a rental market for it, but it would be somewhat diminished for that needed garage storage and needed use of the dock.” He also admitted that he had not conducted that analysis. Id. at *4.
The trial court found that Gonzalez was unable to move into the home during the 20-month period. However, the court denied loss of use damages, finding that Gonzalez’s appraiser based his opinion on flawed assumptions because he had not taken Gonzalez’s partial use into consideration. The appraiser admitted that a lower rental value would be appropriate, but Gonzalez had not proven that lower value. Awarding Gonzalez the full $15,500 per month would constitute an unjust windfall. Id. at 3-5.
On appeal, the Third District Court of Appeals reversed and remanded, finding that Gonzalez established a prima facie case for loss of use damages and the defendants had not proven any setoff. The primary issue presented on appeal was whether the trial court erred in finding the loss of use damages too speculative because the homeowner’s expert did not consider the homeowner’s limited use of the home during the repair period to adjust the damage calculation. The appellate court held that because the expert’s testimony met the homeowner’s burden with respect to establishing these types of damages, the trial court erred in denying loss of use damages. Id. at *5.
The appellate court also addressed the windfall issue. On one hand, denying loss of use damages constituted a large windfall to the defendant tortfeasor. On the other hand, awarding the full rental value without offset for the limited uses constitutes a windfall to plaintiff. In these cases, any windfall should be shifted to the injured plaintiff. The court stated that although the “defendants may have been entitled to a set-off for the limited uses that the homeowner made of the home during the repair period, given the choice between a small windfall for the injured plaintiff and a large windfall to the defendants as tortfeasors, the law favors a windfall for the injured plaintiff. Moreover, the defendants could have mitigated this windfall by meeting their own burden of establishing value for the adjustments at issue.” Id. at *8-9.
In conclusion, an owner that is displaced from using most of the property during construction defects repair is entitled to loss of use damages in addition to direct damages. The owner must make a prima facie showing of the reasonable rental value during the period of displacement. An opinion by a property appraiser based on three comparable properties is sufficient. The burden of proof then shifts to the defendant to establish any setoff, including plaintiff’s limited use of the property. Defendant does not meet this burden by merely highlighting missing adjustments in plaintiff’s expert’s rental value. Defendant must present evidence of value for the adjustments.